2018 (6) TMI 67 - AT - Income Tax

Allowability of commission expenses paid to its sister concern - allowable busniss expenses - Held that - The supply of iron ore is from altogether new parties qua the parties in the preceding assessment year. This fact also gives considerable strength to the existence of services towards procurement of crucial supply. It will not be correct to view the claim in a petty foggy manner and put heavy burden on the assessee to discharge onus disproportionately. The volatility in the price, the fall in the quantity of purchase, the existence of global recession and uncertainty, supply from altogether new parties on a regular basis gives strong indicator for acceptance of services albeit from sister concern. Thus claim towards commission expenses is bonafide and deserves to be allowed. - Decided in favour of assessee Validity of action of the CIT(A) on apportionment of certain expenses of Sponge Iron Unit to power plant unit - reduction of deduction claimed u/s.80IA to the extent of ₹ 40,17,406/- was reversed by the CIT(A) - Held that - In parity with the view taken by the co-ordinate bench in assessee s own case, we do not see any reason to interfere with the decision of the CIT(A) in this regard. Therefore, we decline to interfere with the order of CIT(A). - Decided against revenue

Summary

Issues Involved:
1. Allowability of commission expenses paid to a sister concern.
2. Validity of apportionment of expenses between Sponge Iron Unit and Power Plant Unit affecting the deduction claimed under Section 80IA.

Detailed Analysis:

1. Allowability of Commission Expenses:

The primary issue in the assessee's appeal was the allowability of commission expenses of ?1,20,00,000 paid to its sister concern, M/s. A. M. Ispat Ltd. The assessee contended that the commission was paid for procurement of iron ore during a period of supply disturbances in Karnataka. The AO disallowed the expense, questioning its genuineness, noting the absence of such payments in the previous year, and alleging that the payment was made to nullify the losses of the sister concern. The AO also pointed out the lack of supporting travel and telephone expenses and negative replies from suppliers regarding dealings with M/s. A. M. Ispat Ltd.

The Tribunal observed that the commission was paid for services rendered in procuring iron ore, which was crucial due to supply issues in the region. The commission was accounted for in the sister concern's books, and TDS was deducted. The Tribunal found the assessee's explanations plausible, particularly the difficulties in supply and the necessity of using a commission agent. It was noted that the commission agent was not required to reveal its identity to suppliers, which explained the negative replies. The Tribunal concluded that the claim was bona fide and allowed the commission expenses, directing the AO to delete the disallowance.

2. Validity of Apportionment of Expenses:

The Revenue's appeal contested the CIT(A)'s decision to reverse the AO's apportionment of expenses between the Sponge Iron Unit and the Power Plant Unit, which had reduced the deduction claimed under Section 80IA by ?40,17,406. The AO had increased the expenses attributed to the power plant, thereby reducing the eligible deduction.

The Tribunal noted that a similar issue had been decided in favor of the assessee in the previous assessment year (2008-09), where the CIT(A) had granted relief, and the Tribunal had upheld this decision. The Tribunal reiterated that the power plant was new, required minimal maintenance, and had separate financing arrangements, justifying the exclusion of certain expenses from apportionment. The Tribunal found no basis for the AO's adjustments and upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Conclusion:

The Tribunal allowed the assessee's appeal regarding the commission expenses and dismissed the Revenue's appeal concerning the apportionment of expenses, thereby affirming the CIT(A)'s decision to grant the full deduction under Section 80IA.